MF 274 : Moving forward by incorporating (or not?)
On this episode, I talk about the considerations and some of the requirements that come into play when you decide to incorporate. More at www.bemovingforward.com.
Where am I (and the podcast) so far in 2020?
If you’ve been following the podcast for a while, you’ll know that last year, I shifted to a solo cast focusing on topical mini-series, including:
This year, the format will be looser. I’ll be mixing it up with conversations like the one I had last week with Angelo along with solo casts that share tidbits and lifehacks that have helped me move forward. I’ll also provide updates to last years’ mini-series based on new things I’ve learned as I continue working on Poshmark with my dad and writing my next book.
Speaking of, that’s what I’m up to these days.
I’m currently finishing up my second (or third if you count the coloring book) book, Making More Fake Star Trek (Kindle version available for pre-order, both Kindle and paperback will be released on Feb. 14th), a follow-up to Making Fake Star Trek which came out last April.
Amazingly, we’re releasing the sequel less than a year after the first one. If you want to hear more about how I wrote these books, and if writing a book is on your goal list this year, check out the book writing mini-series.
Should you incorporate or not? (and why I’m not going to tell you)
In addition to working on the book, I’ve also been working on some not so glamorous stuff when it comes to the ventures I’m involved in.
Last year, I gave an update on the season finale of the podcast on a biotech project I’ve been a part of for the past 2.5 years or so.
Without getting into particulars or specifics, we decided to close out the c-corp after it was clear that we were not going to get funded for 2019 or 2020. Even though we’re a small entity; really just a handful of guys working on this project, we were required to incorporate to get into the room with specific agencies to have discussions about funding and moving forward with this project.
This leads to an important question if you’re going to start a side hustle or business.
Should you incorporate?
Right now, entrepreneurship is on a massive mythological pedestal. Everywhere it seems, you see posts, tweets, podcasts, and articles about people breaking away from the 9-5 to start businesses with great success. You can’t blink without seeing or hearing the latest success story of the next “garage” startup. Just hop onto IG and you’ll find a ton of photos showcasing lavish lifestyle photos on the beach with freedom and mindset hashtags.
But the reality is often quite different. There’s a lot that goes into being an entrepreneur that isn’t so sexy or glamorous.
Carol Roth talks about this in her book, The Entrepreneur Equation, a book I read last year that I highly recommend. In it, she argues and quite convincingly, that entrepreneurship isn’t for everyone and there are many responsibilities and considerations that go with being an entrepreneur that you may not be prepared for.
I’m not here to talk you out of (or into) anything. If you have an idea or a side hustle itching at you for 2020, great! What I’d like to do is share some of the things I’ve experienced that may save you some time and headache while giving you food for thought.
One of the basic and most confusing questions about entrepreneurship is whether you should or need to incorporate.
Back in b-school, I had a number of professors who adamantly preached that incorporation was the first thing you should do, always. One professor, in particular, went so far as to advocate incorporating even if you don’t have a business idea yet based on how easy it is to file the paperwork.
After being in the trenches for 6 years, having gone through two LLCs and one c-corp, I can tell you that it’s not that easy. Also, I have to break it to you. I can’t tell you whether you should or shouldn’t incorporate. I know, I hate wishy-washy answers but when it comes to something this important, the answer, as with many life’s mysteries is – it depends.
What I will share are some important questions and considerations if you decide to make the leap or start a side hustle.
Do I need to incorporate?
Start with the what. What product or service are you selling? Is it a side hustle selling clothes from your closet on Poshmark that you’re doing part-time in your off-hours? Are you starting a blog or podcast that you plan to monetize? Are you launching a consulting or coaching business? Or maybe, you’re going all-in on a real estate or biotech startup with several partners. This is a good starting point that will lead you to several other important questions to consider (disclaimer: this list is not all-inclusive, there are many more that will come into play).
Additional questions and considerations:
Where are you right now? If you just started with a small Poshmark business, it may not make sense to incorporate right away. However, if you’re generating 5-to-6-figure income, then you may need to incorporate. Incorporation often comes into play when the business is at a point where it needs the legal protection and tax benefits. I’m not a CPA and while I’m a lawyer, I don’t give legal advice on my podcast or blog so you may need to consult with both to see if it’s right for you. But consider where you are with the business.
Does my business require it? Certain industries are highly regulated or deal in sensitive matters. If your business involves certain goods or services, such as real estate or the aforementioned biotech industry, you may need to incorporate right away regardless of what stage the business is at.
What do I need to do and where? If you decide to incorporate, you’ll need to decide where and look at the rules and requirements for that jurisdiction. Note: contrary to popular belief, Delaware is not necessarily the best place to incorporate. It all depends on what your business is, where it transacts business and other considerations. Again, you may need to consult with a CPA or lawyer or both.
Ongoing responsibilities. This is probably the most overlooked when it comes to starting a business. Once you’ve filed your paperwork and paid the registration fees, you’re not done. You have a lot to do going forward to maintain the entity, including filings, fees, and taxes, both state and federal. You’ll also need a business bank account and that comes with a whole host of considerations and obligations when it comes to accounting. It can be complex to do this all yourself so you may need to consult with a CPA, lawyer or both, which means additional money to maintain your business.
And just when you think you’re out. Finally, if you decide to close out an LLC, c-corp or other structure, you have a lot of, you guessed it, filings, fees, and taxes to contend with. Again, I’ll reiterate – you may need to hire a CPA or attorney or both to help you out with this.
When it comes down to it, whether you should or shouldn’t incorporate is not an easy question to answer and I can’t do that for you. But what I hope I’ve done is provide some considerations and questions that may help you figure out the right answer for you so you can move forward.
Professional: CPA, attorney, business advisor, business banks.
Library: ask a librarian and often, you’ll find workshops or lectures that may be helpful.
State websites: each state will have resources to give you information and help guide you as you consider this question.
There are also a lot of great books on entrepreneurial considerations. One I highly recommend is The Entrepreneur Equation by Carol Roth.
What I’m reading / read
The First Conspiracy by Brad Meltzer and Josh Mensch (****). An excellent, detailed and thoroughly engrossing look at the conspiracies against George Washington during the start of the Revolutionary War. The book reads like a thriller and despite knowing how it turns out, I was on the edge of my seat the whole time!
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